This is not a fringe view. Peter Costello, in his foreword to a book marking the Act’s twenty-fifth anniversary, called it “one of the most important pieces of economic legislation in Australia.” He credited it with creating “a new culture of competition in the Australian economy.”
As recently as last September, ACCC Chair Gina Cass-Gottlieb described well-designed competition policy as “transformative.”
The profession has been telling itself this story for half a century now. It is not wrong, exactly. Still, it leaves out the main character.
Yes, Australia did transform from the mid-1980s. Prices fell, choice expanded, productivity surged. Nobody disputes this. But what actually caused it? By that point, the Trade Practices Act had already been on the books for a decade without the broad economic transformation it supposedly delivered.
The heavy lifting was done, not by competition law, but by the Hawke-Keating microeconomic reforms. They floated the dollar, slashed tariffs, deregulated finance, privatised state enterprises and opened the banking sector to foreign competitors.
These reforms dismantled the import quotas and regulatory walls that had kept Australian manufacturers comfortable and unchallenged for the better part of a century. Industry had to compete with the world. Not because a regulator told firms to behave, but because Japanese cars and European appliances were suddenly on showroom floors, at prices local manufacturers could not match.
Yes, competition law played a part. But the real transformation came from opening the economy.
Take household appliances. During the reform period, the number of local manufacturers shrank and the industry became more concentrated. By the logic of competition law, this should have been a disaster. Fewer producers means less competition. Consumers should have suffered.
They did not. Prices fell and choice exploded. Tariffs on refrigerators dropped from 47.5 per cent to 5 per cent. In 1999, the Productivity Commission studied what had happened. It attributed the gains to trade reforms that reduced “barriers to market entry,” not to competition law. Anyone in the world could now sell a fridge in Sydney.
The economist Israel Kirzner, now 96 and long overdue for a Nobel Prize, spent his career at New York University making exactly this point. His work shaped my own doctoral research in the law and economics of competition.
Kirzner’s central argument is that competition is not a snapshot of how many firms happen to sit in a market at any given moment. It is a process, driven by entrepreneurs spotting opportunities and entering markets to challenge incumbents. A market with two players can be fiercely competitive if both know a third could arrive tomorrow. A market with twenty can be sleepy if regulation keeps the twenty-first from showing up.
Hawke and Keating grasped this, perhaps instinctively. The way to make an economy competitive is to open it up, let foreign goods in, let new businesses form and remove the barriers that protect incumbents from challenge. Competition law can help keep the game honest once the field is open. But it is the opening that matters most.
Before the Hawke-Keating reforms, Australia had competition law on the books but precious little competition in practice. After the reforms, it had both. You cannot regulate your way to competition in an economy that remains closed. You must open it up so that competitive pressure becomes a fact of commercial life, not a goal statement in a regulator’s annual report.
This is not just a historical curiosity. The same confusion between competition law and actual competition still drives policy on both sides of the Tasman.
Australia has introduced mandatory merger notification, with fees starting near $57,000. A supermarket price gouging ban takes effect in July.
Before last year’s election, Peter Dutton even proposed giving the regulator the power to break up companies. He lost, but the impulse survived him. Both sides of Australian politics share the assumption that if competition is not working, the regulator needs a bigger stick.
New Zealand’s coalition government has the right instincts. Finance Minister Nicola Willis has spoken about the regulatory barriers that let incumbents entrench themselves. The coalition agreement promises market studies focused on reducing barriers to entry.
Yet the competition legislation now heading through Parliament tells a different story. Drafted before the coalition’s pro-entry rhetoric took shape, it hands the Commerce Commission new powers to freeze mergers, review sequences of smaller acquisitions and police pricing. More authority over firms already operating, while the planning rules, zoning restrictions and infrastructure charges that keep new competitors out remain untouched.
Try opening any large retail store in Auckland, whether it is a supermarket, furniture outlet or hardware chain. You need resource consent from the local council, which can take years. You pay hundreds of thousands of dollars in development levies.
Then come the building codes, employment rules and traffic assessments, all before you welcome a single customer. By the time you have cleared every hurdle, your capital is gone and probably your enthusiasm with it. No amount of merger oversight or pricing regulation changes any of this.
Australia’s Productivity Commission modelling suggests a reinvigorated national competition policy could add up to $45 billion a year to the economy. The Commission keeps pointing to where the biggest practical gains sit: simplifying rules, removing licensing barriers and fixing planning laws. That is not a rounding error.
But that kind of reform is slow and unglamorous. It means mapping all the obstacles facing someone who wants to open a shop and then removing them one by one. Nobody holds a press conference for abolishing a zoning restriction. Announcing a crackdown on big business, by contrast, is easy, decisive-sounding and fits in a headline.
Politicians on both sides of the Tasman know this, which is why they keep reaching for the regulator’s toolkit. It lets them look as if they are doing something about competition without touching the regulatory thicket that actually suppresses it.
Hawke and Keating understood the difference. Half a century on, their successors are still struggling with it.
Dr Oliver Hartwich is the Executive Director of The New Zealand Initiative think tank. This article was first published HERE.
The profession has been telling itself this story for half a century now. It is not wrong, exactly. Still, it leaves out the main character.
Yes, Australia did transform from the mid-1980s. Prices fell, choice expanded, productivity surged. Nobody disputes this. But what actually caused it? By that point, the Trade Practices Act had already been on the books for a decade without the broad economic transformation it supposedly delivered.
The heavy lifting was done, not by competition law, but by the Hawke-Keating microeconomic reforms. They floated the dollar, slashed tariffs, deregulated finance, privatised state enterprises and opened the banking sector to foreign competitors.
These reforms dismantled the import quotas and regulatory walls that had kept Australian manufacturers comfortable and unchallenged for the better part of a century. Industry had to compete with the world. Not because a regulator told firms to behave, but because Japanese cars and European appliances were suddenly on showroom floors, at prices local manufacturers could not match.
Yes, competition law played a part. But the real transformation came from opening the economy.
Take household appliances. During the reform period, the number of local manufacturers shrank and the industry became more concentrated. By the logic of competition law, this should have been a disaster. Fewer producers means less competition. Consumers should have suffered.
They did not. Prices fell and choice exploded. Tariffs on refrigerators dropped from 47.5 per cent to 5 per cent. In 1999, the Productivity Commission studied what had happened. It attributed the gains to trade reforms that reduced “barriers to market entry,” not to competition law. Anyone in the world could now sell a fridge in Sydney.
The economist Israel Kirzner, now 96 and long overdue for a Nobel Prize, spent his career at New York University making exactly this point. His work shaped my own doctoral research in the law and economics of competition.
Kirzner’s central argument is that competition is not a snapshot of how many firms happen to sit in a market at any given moment. It is a process, driven by entrepreneurs spotting opportunities and entering markets to challenge incumbents. A market with two players can be fiercely competitive if both know a third could arrive tomorrow. A market with twenty can be sleepy if regulation keeps the twenty-first from showing up.
Hawke and Keating grasped this, perhaps instinctively. The way to make an economy competitive is to open it up, let foreign goods in, let new businesses form and remove the barriers that protect incumbents from challenge. Competition law can help keep the game honest once the field is open. But it is the opening that matters most.
Before the Hawke-Keating reforms, Australia had competition law on the books but precious little competition in practice. After the reforms, it had both. You cannot regulate your way to competition in an economy that remains closed. You must open it up so that competitive pressure becomes a fact of commercial life, not a goal statement in a regulator’s annual report.
This is not just a historical curiosity. The same confusion between competition law and actual competition still drives policy on both sides of the Tasman.
Australia has introduced mandatory merger notification, with fees starting near $57,000. A supermarket price gouging ban takes effect in July.
Before last year’s election, Peter Dutton even proposed giving the regulator the power to break up companies. He lost, but the impulse survived him. Both sides of Australian politics share the assumption that if competition is not working, the regulator needs a bigger stick.
New Zealand’s coalition government has the right instincts. Finance Minister Nicola Willis has spoken about the regulatory barriers that let incumbents entrench themselves. The coalition agreement promises market studies focused on reducing barriers to entry.
Yet the competition legislation now heading through Parliament tells a different story. Drafted before the coalition’s pro-entry rhetoric took shape, it hands the Commerce Commission new powers to freeze mergers, review sequences of smaller acquisitions and police pricing. More authority over firms already operating, while the planning rules, zoning restrictions and infrastructure charges that keep new competitors out remain untouched.
Try opening any large retail store in Auckland, whether it is a supermarket, furniture outlet or hardware chain. You need resource consent from the local council, which can take years. You pay hundreds of thousands of dollars in development levies.
Then come the building codes, employment rules and traffic assessments, all before you welcome a single customer. By the time you have cleared every hurdle, your capital is gone and probably your enthusiasm with it. No amount of merger oversight or pricing regulation changes any of this.
Australia’s Productivity Commission modelling suggests a reinvigorated national competition policy could add up to $45 billion a year to the economy. The Commission keeps pointing to where the biggest practical gains sit: simplifying rules, removing licensing barriers and fixing planning laws. That is not a rounding error.
But that kind of reform is slow and unglamorous. It means mapping all the obstacles facing someone who wants to open a shop and then removing them one by one. Nobody holds a press conference for abolishing a zoning restriction. Announcing a crackdown on big business, by contrast, is easy, decisive-sounding and fits in a headline.
Politicians on both sides of the Tasman know this, which is why they keep reaching for the regulator’s toolkit. It lets them look as if they are doing something about competition without touching the regulatory thicket that actually suppresses it.
Hawke and Keating understood the difference. Half a century on, their successors are still struggling with it.
Dr Oliver Hartwich is the Executive Director of The New Zealand Initiative think tank. This article was first published HERE.
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